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Video: Tough choices for U.S. consumers

AOMORI, Japan — Leading energy-consuming nations urged oil producers Saturday to boost their output to counter soaring prices threatening the world economy, while they pledged to develop clean energy technologies and improve efficiency.

The five nations — the United States, China, Japan, India and South Korea — differed, however, on how urgently oil subsidies should be phased out, with Washington backing bold movement while India and China warned of political and economic instability.

Cabinet ministers from the five countries, which account for more than half the world’s consumption of energy, agreed that the sharp surge in oil prices was a menace to the world economy, and that more petroleum should be produced to meet rising demand.

“It’s not good for producing nations to see the U.S. struggling economically. They depend on us to be a significant engine in world economic activity,” U.S. Energy Secretary Samuel Bodman said.

The current president of the Organization of Petroleum Exporting Countries, Chakib Khelil, has said that the cartel will make no new decision on production levels until its Sept. 9 meeting in Vienna.

Oil prices made their biggest single-day surge on Friday, soaring $11 to $138.54 on the New York Mercantile Exchange, an 8 percent increase. That followed a $5.50 increase the day before, taking oil futures more than 13 percent higher in just two days.

World oil production has stalled at about 85 million barrels a day since 2005, while global economic growth — boosted by spectacular surges in China and India — has pushed demand to unprecedented levels.

At the start of an energy conference of ministers from the Group of Eight industrialized nations, Japan’s trade and energy minister warned that rising energy prices could cause a global recession.

Akira Amari called for a strong message ahead of the G-8 leaders summit next month in Japan. The 11 nations gathered in Aomori account for 65 percent of the world’s energy consumption and its emissions of greenhouse gases.

“What actions we take to address the challenges that we face will have an extremely important effect in solving the global energy issue,” he said.

The five leading consumer countries, meeting before the G-8 conference, argued that the unprecedented prices were against the interests of both producers and consumers, and imposed a “heavy burden” on developing countries.

The ministers also vowed to diversify their sources of energy, invest in alternative and renewable fuels, ramp up cooperation in strategic oil stocks in case of a supply shortage, and improve the quality of data on production and inventories available to markets.

The group diverged somewhat over oil subsidies. The International Energy Agency has estimated that oil subsidies in China, India and the Middle East totaled about $55 billion in 2007.

The United States, which has its own energy subsidies, urged countries such as China to lower its oil supports, which enable domestic consumers to enjoy cheaper gasoline. Subsidies shield consumers from higher prices, meaning consumption does not decline despite rising expenses.

But China and India, while signing onto a statement recognizing the need to eventually phase out such subsidies, argued that removing such supports quickly could trigger political and economic instability.

“We are taking very precise and delicate measures so we will not destabilize the government,” said Zhang Guibao, China’s delegate. “If we face such problems in a country such as China, with a large population ... there would be adverse impacts felt throughout the world.”

India is already facing such effects. The government on Wednesday hiked gasoline and diesel prices, triggering protests by angry consumers who blocked rail tracks and roads and shut down businesses.

There were also differences of opinion over the cause of the wild rise in oil prices. Bodman argued the surge was largely a simple problem of supply and demand.

“We’re in a difficult position where we have a lid on production and we have increasing demand in the world,” he told a small group of reporters before the meeting, dismissing the idea that speculation was fueling price increases.

China, however, insisted that rising demand largely fueled by its own dramatic economic growth was not the sole factor driving prices. Zhang said hedge funds and “hot money” were flooding into the energy sector, distorting the market.

Underlying the meeting was growing concern about the effect of rising prices on the economy. The U.S., for instance, reported on Friday its unemployment rate rose to 5.5 percent in May, a monthly rise of half a percentage point, the biggest in 22 years.

Bodman conceded that even quick action would not pull down prices immediately.

“There are relatively few things we can do short term,” he said. “This has been a long time in coming ... this is going to take a long time to accomplish.”

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